U.S. trade deal could be a lot for Europe to swallow

Can Europeans, who have balked for years at many U.S. food imports, accept a free-trade agreement with the United States that opens the door for imports of genetically modified crops and chickens cleaned with chlorine?

That's one of the big questions facing policymakers as the transatlantic trading partners, both hoping to boost exports to help their struggling economies, consider launching talks in 2013 on a free trade pact.

The United States and the 27 member states of the European Union already have the largest economic relationship in the world - and one of the most complicated.

Two-way goods trade totals more than $600 billion annually. Services trade, including sales by majority-owned U.S. or EU companies in each other's market, adds about $1.2 billion.

U.S. companies have invested around $1.9 trillion dollars in production, distribution and other operations in the EU, far more than in China or anywhere else in the world. EU companies have invested about $1.6 trillion in the United States.

Still, with each side desperate to spur job creation, President Barack Obama and European leaders formed a high-level working group last year to consider launching a free-trade pact.

A final report has been expected this month, but with the Christmas holidays fast approaching it could slip to January.

"What is still under discussion is whether we can figure out a way to do it," EU Trade Commissioner Karel De Gucht said last week. "I believe it will not be easy but that we have good prospects."

The idea has been kicked around for decades but never pursued, both because of the thorny agricultural issues and concern bilateral talks would sap energy from global trade negotiations, but those are now all but officially dead.

The tariffs the United States and EU have on each other's goods are relatively low and should cause few problems for negotiators aiming to eliminate them. But differences in regulation could be much harder to tackle.

EU FOOD BARRIERS "NON-SCIENTIFIC"

Nowhere is that clearer than in the agricultural sector, where the United States has been frustrated for years by what it considers the EU's "non-scientific" approach to food safety.

The EU has blocked imports of U.S. genetically modified corn and soybeans, poultry treated with chlorine dioxide, beef treated with lactic acid to kill pathogens and pork produced from hogs fed ractopamine, which promotes lean meat growth.

In other words, many U.S. farm products exported to other markets are not welcome in Europe, even though the United States says there is ample evidence that they are safe.

"Food safety as exemplified by GMOs (genetically-modified organisms) has been probably one of the most problematic, controversial areas of the EU-U.S. economic relationship," said Peter Chase, a vice president at the U.S. Chamber of Commerce.

But "there is a perception that slowly, things are changing in Europe, as their farmers actually need the benefits of science more, and as we have well over a decade now of experience with the vast majority of GMO crops," Chase said.

The regulatory hurdles infuriate U.S. farmers, who see them as nothing other than veiled protectionism for European farmers.

Nick Giordano, vice president for the National Pork Producers Council, said he is optimistic the two sides will launch free trade talks and tackle the regulatory barriers.

But he warned that farm groups are prepared to go on the war path if their concerns are left out.

"We want this agreement to be a 21st century agreement, not a 19th century one," Giordano said. "On all these issues, the United States has the moral high ground."

Chase said a U.S.-EU pact could help build confidence in each other's regulatory systems, which over time should help change attitudes in Europe toward GMOs.

The EU recently made progress on one U.S. food concern when the European Parliament declined to block a proposal allowing the use of lactic acid to clean bovine carcasses, a practice which the European Food Safety Authority has ruled is safe.

That clears the way for the European Commission, the EU's executive body, to authorize its use, which is expected early in 2013. In turn, that should allow the United States to make full use of an import quota allowing it to ship 45,000 metric tons of non-hormone-treated beef to Europe each year.

The quota was the result of a deal struck in 2009 that ended a long-running dispute over the EU's ban on beef from cattle injected with artificial growth hormone, a practice the United States says has been proved safe.

U.S. trade officials say they are looking for other "confidence-building measures" from the EU before launching talks, although the U.S. Trade Representative's office declined to provide specific examples.

"Given the substantial commitment of resources and time necessary for a U.S.-EU negotiation, we are seeking to maximize our confidence that the opportunity of a trade negotiation will help us resolve issues that have long defied solution," USTR spokeswoman Andrea Mead said.

U.S. officials expressed disappointment in September when the EU delayed a decision to allow U.S. wine exports to Europe to use the word "chateau," after complaints from French wine growing regions including Bordeaux.

European consumers associate the word chateau with wines from a specific vineyard attached to a stately home, while in the United States the term can be used to describe wines made from grapes from multiple sources

U.S. VISA RULES FRUSTRATE EU COMPANIES

Meanwhile, U.S. and EU business groups are gearing up for what they hope will be a quick negotiation that reaches a deal before European Commission President Jose Manuel Barroso finishes his second term in 2014.

European companies have their own concerns, including U.S. security rules that require them to give two days notice before flying to the United State and complex visa and customs declarations that they see as non-tariff barriers that slow down and complicate transatlantic business.

In other sectors, such as pharmaceuticals, reducing regulatory barriers across the Atlantic could cut costs.

"We could save a lot of money by harmonizing packaging on our pharmaceutical products for both the U.S. and the EU," a senior German pharmaceuticals executive said. The executive offered asthma inhalers as an example, saying the company spent up to $10 million to prepare the product for the two markets because of two different stands for dose counters.

"I think the stars may be aligned now in way that they have not been aligned in the past," U.S. Ambassador to the EU William Kennard told business leaders last week. "If we're smart we can seize this opportunity," he said.